Credit managers warn against Fed rate raises
December 4, 2006,
Columbia, Md. -- A monthly barometer of business credit conditions compiled by the nation's credit managers continued to decline, if slightly, in November, pointing to slowing growth in the U.S. economy.
Other economic data support the sliding index, he said, including uneven holiday sales, plunging durable goods orders, falling consumer confidence, and below-trend GDP growth. "In addition, the median sales price for existing homes has fallen on a year-over-year basis for an unprecedented three straight months, the latest of which was the largest decline ever."
Putting much of the blame for a faltering economy on Federal Reserve monetary policies, North said, "Fed Chairman Bernanke and the Fed governors have been predictably banging the drum about the high risks of inflation and how the deteriorating housing market will not hurt the economy. It is difficult to read much into this 'jawboning' because, no matter what the economic circumstances might be, the Fed must continue to build credibility and present a clear, uniform message: 'We are inflation fighters.' However, if the slowing economy does fail to quell inflation, the Fed will continue to raise rates to reduce the risk of inflation, and by so doing, increase the risk of seriously hampering the economy."
Given the deteriorating trends in the Credit Managers Index, he added, "that scenario could be a most unwelcome one."